Lowdown on the Slowdown


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Lowdown on the Slowdown

  1. 1. Principal Global Investors The Lowdown on the Slowdown BOB BAUR, PHD CHIEF GLOBAL ECONOMIST October 2010 All expressions of opinion and predictions in this report are subject to change without notice. This report is not intended to be, nor should it be relied upon in any way as a forecast or guarantee of future events regarding a particular investment or the markets in general. All opinions expressed are those of Principal Global Investors.
  2. 2. But, Is That the Whole Story? <ul><li>How we got here </li></ul><ul><li>Moderate economic recovery </li></ul><ul><li>Main risk: uncertain tax, regulatory environment </li></ul><ul><li>Despite problems, odds of a double-dip are low </li></ul>
  3. 3. Financial Crisis Hits Economy…
  4. 4. And Employment
  5. 5. Great Start to Recovery
  6. 6. Moderate Economic Growth
  7. 7. Job Doldrums
  8. 8. Moderate Recovery Continues <ul><li>In the Euro area… </li></ul><ul><ul><li>More resilient than believed </li></ul></ul><ul><ul><ul><li>Surveys show expansion </li></ul></ul></ul><ul><ul><ul><li>German export engine revving </li></ul></ul></ul><ul><ul><ul><li>Industrial production rising </li></ul></ul></ul><ul><ul><li>Fiscal austerity may help </li></ul></ul><ul><ul><li>Growth slows, but double-dip appears unlikely </li></ul></ul>
  9. 9. China Driving Growth <ul><li>In emerging markets… </li></ul><ul><ul><li>35% of global GDP </li></ul></ul><ul><ul><li>Growing fast </li></ul></ul><ul><li>China growth decelerating </li></ul><ul><ul><li>Likely to remain 8% or more </li></ul></ul><ul><ul><li>Wages rising fast </li></ul></ul><ul><ul><li>Consumer spending stronger </li></ul></ul><ul><ul><li>Policy loosening at margin </li></ul></ul><ul><ul><li>More infrastructure funding </li></ul></ul>
  10. 10. In the United States <ul><li>Momentum turned down </li></ul><ul><li>But many positives </li></ul><ul><ul><li>Rising income supports consumer spending </li></ul></ul><ul><ul><li>Huge profits lead to strong investment </li></ul></ul><ul><ul><li>Exports growing fast </li></ul></ul><ul><ul><li>Loan demand, credit availability rising </li></ul></ul><ul><ul><li>U.S. financial crisis gradually abating </li></ul></ul>
  11. 11. What Happened? <ul><li>The 3G problem: </li></ul><ul><ul><li>G rowth slowed </li></ul></ul><ul><ul><ul><li>Business pumped up output…then turned cautious </li></ul></ul></ul><ul><ul><li>G reece debt </li></ul></ul><ul><ul><ul><li>Another financial crisis? </li></ul></ul></ul><ul><ul><li>G overnment policy uncertainty </li></ul></ul><ul><ul><ul><li>Intrusive regulation, burdensome taxes, record deficits </li></ul></ul></ul><ul><li>Fear returned </li></ul><ul><ul><li>Stock market plunge can be self-fulfilling </li></ul></ul><ul><ul><li>Confidence  markets  economy </li></ul></ul>
  12. 12. The Main Risk <ul><li>Poor policy </li></ul><ul><ul><li>Incentives matter </li></ul></ul><ul><ul><ul><li>High taxes suppress jobs, investment </li></ul></ul></ul><ul><ul><ul><li>Excessive regulation raises costs, reduces supply </li></ul></ul></ul><ul><ul><ul><li>Uncertainty keeps business cautious </li></ul></ul></ul><ul><ul><li>Reduces potential growth </li></ul></ul><ul><li>Pro-growth policies needed </li></ul>
  13. 13. Double-Dip Ahead? <ul><li>Odds don’t seem high </li></ul><ul><ul><li>Double-dips rare </li></ul></ul><ul><ul><li>Decelerating growth is natural </li></ul></ul><ul><ul><li>Stocks not expensive </li></ul></ul><ul><ul><li>Yield curve steep </li></ul></ul><ul><ul><li>Bond market performing </li></ul></ul><ul><ul><li>Job market improving </li></ul></ul><ul><ul><li>Euro bailout big enough </li></ul></ul><ul><ul><li>Emerging market story…soooo not over </li></ul></ul>
  14. 14. U.S. Investment Themes <ul><li>Growth is good for stocks </li></ul><ul><ul><li>Emerging market consumers </li></ul></ul><ul><ul><li>U.S. growth, large cap, dividend payers </li></ul></ul><ul><li>Absent a market collapse… </li></ul><ul><ul><li>Inflation likely bottoming </li></ul></ul><ul><ul><li>Rising interest rate environment </li></ul></ul><ul><ul><li>Corporate vs. sovereign bonds </li></ul></ul><ul><li>Commercial real estate trough </li></ul>
  15. 15. Legal Stuff <ul><li>The information in this document has been derived from sources believed to be accurate as of September 2010. Information derived from sources other than Principal Global Investors or its affiliates is believed to be reliable; however we do not independently verify or guarantee its accuracy or validity. </li></ul><ul><li>The information in this document contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The general information it contains does not take account of any investor's investment objectives, particular needs or financial situation. Nor should it be relied upon in any way as forecast or guarantee of future events regarding a particular investment or the markets in general. All expressions of opinion and predictions in this document are subject to change without notice. </li></ul><ul><li>Subject to any contrary provisions of applicable law, no company in the Principal Financial Group nor any of their employees or directors gives any warranty of reliability or accuracy nor accepts any responsibility arising in any other way (including by reason of negligence) for errors or omissions in this document. </li></ul><ul><li>  All figures shown in this document are in U.S. dollars unless otherwise noted. </li></ul>
  16. 16. More Legal Stuff <ul><li>Before investing, you should carefully consider a fund’s investment objectives, risks, charges, and expenses. Contact your financial professional, visit principalfunds.com, or call 800-222-5852 to obtain a prospectus containing this and other information. Read the prospectus carefully before investing. </li></ul><ul><li>A mutual fund's share price and investment return will vary with market conditions, and the principal value of an investment when you sell your shares may be more or less than the original cost. </li></ul><ul><li>Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc., member of the Principal Financial Group®. Principal Funds Distributor, Principal Shareholder Services, Principal Management Corporation and its affiliates, and Principal Funds, Inc. are collectively referred to as Principal Funds. t10090303ss </li></ul>
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